Private sector investment in Afghanistan is in short supply. The risks facing investors are so high that very few investments can generate the kind of returns that are required to make them viable. This is where the Afghan Business Innovation Fund (www.imurabba.org) steps in, by compensating for investment risk without subsidising operations. We select investments that will change the way that markets work, benefiting our target groups of poor men and women.

Herat mosque

Herat mosque

28 April 2012

Investing in Afghanistan

Climbing out of poverty, collecting

garbage in Kabul

A few weeks ago, I read a fairly gloomy article in the Financial Times about the end of the economic boom (what economic boom?), saying that investment is drying up in Afghanistan. My feeling when I read that article (as it is now) runs counter to the author's main observations and conclusions.

It seems to me that against all of the odds, there is a growing group of investors who are slowly building a serious financial stake in the future of the country. My view is that with the kind of incentive that ABIF is offering, this process can be accelerated - with all of the wider benefits that flow from private sector investment.

After spending something like 6 years out of the last 10 in the country, I would never underestimate the obstacles to economic development in Afghanistan. However I do genuinely believe that with the right interventions, such as investment incentives, we will be surprised at how much can be achieved in a relatively short space of time.

DFID's investment in ABIF, which was set up as an independent competitive challenge fund with a very clear market development strategy (an essential combination of factors in this kind of environment), will pay back many times over. Those people responsible for making ABIF happen deserve a lot of credit, and DFID should be commended for taking the risk of financing such a project in such a problematic environment.

So here we are today, reaching the end of the first competitive round. We have just completed the evaluation of the detailed business plans we received from the 11 applicants who made it onto our final shortlist. The great news is that we think we could support well over half of these potential investment projects, an excellent interim result (after less than 6 months) for a private sector challenge fund operating in a place like Afghanistan.

This week we have our Investment Panel meeting at which the business plans and our evaluation will be subjected to external scrutiny. The Panel will review the business plans and our opinion, meet the applicants and provide their advice on the projects we are recommending for funding. It will be a long day!

We have evaluated all of the business plans against three sequential criteria:

Project viability;

Expected development outcome; and

Quality of the applicant.

Spring in Kabul, apple blossom in our garden

This evaluation process has been extremely rigorous. We have always said that we will refuse to compromise on the quality of application that we will fund; better to fund nothing than fund the wrong thing. ABIF has a limited budget and we want to make it go as far as possible. So the UK taxpayer can rest assured that their money will be applied as effectively as possible, to incentivise genuine investment in projects that will benefit tens, possibly hundreds, of thousands of poor Afghans.

Despite the Financial Times' somewhat negative take on investor sentiment, it is striking that in all of the projects that we are recommending for funding, the applicant is ready to put a significant amount of their own money into the project. There are clearly some people (and our 350 plus applicants were from all over Afghanistan) who believe that now is the time to invest.

I sincerely hope that the projects we are proposing to recommend for funding will survive the Panel's external scrutiny and that we will move very rapidly to negotiating and then signing Grant Implementation Agreements, and finally to disbursing money to some excellent projects. Watch this space!

2 comments:

We passed 10 years of government experience but we haven’t small felling of developing, there are a lot of problems to case these so slowly developing progress but I believe one of important reason for this is forgot the talent and graduated persons in government chart as you know the talent are the keys for developing when we don’t use of these keys then we can’t achieve to success soon and if we support them we can cross 100 years old way in 1 yeari believe the most important point for Afghanistan is invest on educated and talent persons of Afghanistanh.nazari

Thank you Mr Nazari. I totally agree with you that the educated and talented people of Afghanistan will be the key to your country's development.

One of the problems at the moment is that many of these people are enticed out of the productive economy (the wealth creating private sector) into the public sector. The international community has contributed to this talent drain by paying salaries way beyond anything the local private sector could afford to anyone who could be described as educated or talented.

After 10 years of poaching the brightest and best (and in the process creating a public expenditure commitment that guarantees dependency on donors for years to come), the same people wonder why economic development proves to be so elusive.

About Me

I have worked in international development in Eastern Europe, Asia and Africa since the early 1990's. I specialise in private sector development; my experience includes managing privatisation transactions and private sector investment projects, advising on PSD policy and enabling environment reform, central government capacity building, investment fund management and SME development.

Over the last few years, my focus has been market development programmes; Katalyst (Bangladesh) and from March 2011 to early 2013 I led the design and implementation of ABIF, a DFID and Australian financed £7.2 million private sector investment challenge fund in Afghanistan. I retain oversight of ABIF, but now as part of a wider portfolio of projects.

I am also a member of the Advisory Panel of the UK private equity fund, In Frontier, which focuses on Afghanistan.

I love traveling, whether for work or for pleasure, but my real home is Sofia, Bulgaria. It is a fantastic place to be when I have the occasional opportunity to get there!